Member Sign In

You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating indiv idual securities.

If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.

Will Earnings Be the Catalyst?

Stocks sold off on Friday and appear on track to start today’s session on the weak side as well. There is not much on the data front today, though the 2014 Q1 earnings season will get in the spotlight with Tuesday’s Alcoa (AA - Free Report) release and Friday’s reports by J.P. Morgan (JPM) and Wells Fargo (WFC).

Expectations for Q1 remain low, having fallen sharply under the weight of overwhelmingly negative guidance from management teams. Total earnings for companies in the S&P 500 are expected to be down -3.3% from the same period last year on modestly higher revenues and lower margins. This is the second time since the current cycle got underway in 2009 that earnings for the S&P 500 index are expected to be down at this stage.

Negative revisions have been a persistent trend for more than a year now, though the magnitude of negative revisions to Q1 estimates was greater than what we have witnessed in other recent quarters. Weather was likely a big reason for the increased Q1 estimate cuts, with retail and other weather exposed sectors suffering heavy revisions. But the overall Q1 weakness is broad-based and not concentrated in any one sector – 10 of the 16 Zacks sectors are currently expected to show earnings declines in the quarter.

The flip side of low estimates is that it provides an easy hurdle rate for companies to jump through. Roughly two-thirds of the S&P 500 members come out with positive earnings surprises in any given quarter and if Q1 estimates really are on the low side, then beat ratios could very well come out on the higher side this time around. But more than positive earnings (and revenue) surprises, the market will be looking for some evidence that the outlook for the coming quarters is stabilizing, if not improving.

The current consensus earnings view puts Q1 as the low point for the year, both in terms of growth as well as the overall level of total earnings. But the expectation is of notable improvement from Q2 onwards and a strong ramp-up later this year and into 2015. Guidance will determine how the outlook for those coming quarters will evolve. Guidance has been negative for more than a year now and estimates for Q2 and beyond will start coming down if we don’t see any change on that front in the next few weeks.

The economic reports for March, including Friday’s jobs report, have broadly confirmed that the U.S. economy has started to come out of the Winter freeze. The magnitude and pace of the bounce-back in activity levels has been a bit on the weak side, but there is notable improvement in March data relative to what we saw in the first two months of the year. Investors will be looking for a similar trend on the earnings side as well.

Resources

Client Support

Follow Us

Zacks Research is Reported On:

Yahoo

MSN

Marketwatch

Nasdaq

Forbes

Investors.com

Morningstar

Zacks Investment Research is an A+ Rated BBB Accredited Business.

Copyright 2016 Zacks Investment Research

At the center of everything we do is a strong commitment to independent research and sharing its profitable discoveries with investors. This dedication to giving investors a trading advantage led to the creation of our proven Zacks Rank stock-rating system. Since 1988 it has nearly tripled the S&P 500 with an average gain of +26% per year. These returns cover a period from 1988-2015 and were examined and attested by Baker Tilly Virchow Krause, LLP, an independent accounting firm.

Visit performance for information about the performance numbers displayed above.